WASHINGTON — Regulators are looking into the $2 billion trading loss by JPMorgan Chase, the head of the Securities and Exchange Commission said Friday as lawmakers and analysts said the bank’s revelation would increase pressure for tighter financial rules.
“I think it’s safe to say that all the regulators are focused on this,” SEC chairwoman Mary Schapiro told reporters after a speech at a Washington conference, according to news reports. She would not comment further.
The Federal Reserve and Britain’s banking regulator learned of the trading loss last month and have been in discussions with JPMorgan Chase about it, The New York Times reported Friday.
The huge loss from a trading portfolio intended to help the bank manage credit risk comes as JPMorgan Chase chief executive Jamie Dimon has helped lead the charge against tougher financial rules being drafted by regulators.
The news could lead regulators to resist efforts to soften the Volcker Rule, a key provision in the 2010 Wall Street reform law. The rule, still being finalized, would limit trading by banks for their own accounts.
“This regrettable news from JPMorgan Chase obviously goes counter to the bank’s narrative blaming excessive regulation for the woes of financial institutions,” said Rep. Barney Frank, D-Mass., one of the lead authors of the law. “The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today.”
Frank noted a recent estimate by JPMorgan Chase that complying with new regulations would cost the bank $400 million to $600 million.
“In other words, JPMorgan Chase, entirely without any help from the government has lost, in this one set of transactions, five times the amount they claim financial regulation is costing them,” Frank said.
An Obama administration official, who was not authorized to speak publicly about the issue, said JPMorgan’s trading loss underscored the need to keep pushing to implement the new regulations in the financial reform law.
The trading loss was an embarrassment for JPMorgan, which came through the 2008 financial crisis in much better health than its peers. It kept clear of risky investments that hurt many other banks. The loss came over the past six weeks in a portfolio of the complex financial instruments known as derivatives, and in a division JPMorgan says was supposed to control its exposure to risk in the financial markets.
“The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought,” Dimon said Thursday. “There were many errors, sloppiness and bad judgment.”
Dennis Kelleher, president of Better Markets, a nonpartisan group advocating financial reform, said a strong Volcker Rule is needed to limit risky bets by large banks.
“Jamie Dimon and JPMorgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too big to manage,” Kelleher said. “They must not be allowed to continue to threaten our financial system and our economy.”
